8 February 2016

CPA revises construction growth forecast

In its latest forecast, the Construction Products Association (CPA) estimates growth for the construction industry of 3.6% in 2016.


This is a downward revision from the autumn 2015 forecast of 3.8%, mainly due to slower UK economic growth.


The forecast horizon remains positive, largely due to the inclusion of HS2 main works for the first time. However, risks that threaten construction activity have intensified, particularly from weakening global economic growth, the EU referendum and skills shortages.


Total construction output is forecast to grow by 3.6% in 2016 and 4.1% in 2017. Private housing starts are predicted to rise by 5.0% in both 2016 and 2017, while industrial activity is expected to increase by 21.3% by 2019. Offices construction is tipped to rise by 7.0% in 2016 and 2017.


CPA economics director, Professor Noble Francis, said: “The key fundamentals for the sector are generally positive and construction growth is set to be more balanced. Private housing work, especially in London and the South East, provided the majority of growth between 2012 and 2015. During this forecast period, however, all three of the largest construction sectors – private housing, commercial and infrastructure – are expected to drive industry activity.”


He continued: “Private housing starts are forecast to rise 5.0% in both 2016 and 2017, buoyed by a high latent demand for home ownership, which is enabled through rising mortgage lending and policies from government. The demand-side policies in particular will fuel house price inflation further, especially in the capital, whilst also incentivising major house builders to increase building rates over the next 12-18 months. In addition, given all the government assistance to boost the housing market, house builders are likely to be under pressure to increase supply throughout parliament.”


Professor Francis added: “Public housing prospects continue to be poor. Housing associations will be adversely affected by a lack of funding as rental income will be hit by the extension of Right to Buy and cuts to social rent. Public housing starts are expected to fall a further 5.0% in 2016 and no significant growth is expected over the forecast period.


“The commercial sector is forecast to improve 3.7% on average per year through to 2019. New offices construction will lead activity in the sector, increasing 7.0% in 2016 and 2017, due to a flurry of high profile developments in London, Birmingham and Manchester. Retail construction, on the other hand, is expected to remain flat in 2016 and only rise 2.0% in 2017.”


However, Professor Francis pointed out that there are risks to the forecast relating to the uncertainty regarding global economic prospects and, in particular, weakness in China and the effect it can have on other countries. In addition, uncertainty surrounding the EU Referendum is already affecting investment decisions. Finally, skills shortages and the availability and cost of skilled labour has already impacted the house building sector.


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